Having internal knowledge of products and processes is a key for success in the 21st century, just as it was during the early part of the 20th.
“We are in the following lines of business, every one of which grows out of the making of motors: aeroplanes, coal mining, coke manufacture, by-products of manufacture, lead mining, iron mining, foundry, steel manufacture, tool making, machinery manufacture, car truck and tractor manufacture, glass manufacture, artificial leather, copper wire, Fordite, textiles, batteries and generators, paper, cement, automobile bodies, Johanssen gages, electric power, stock raising, radio, printing, photography, forging, flax growing, steam turbine, electric locomotives, logging, saw mills, body parts, dry kilns, wood distillation, products of hydro-electric power, grocery stores, shoe stores, clothing stores, butcher shop, railroads, educational, ocean transportation, lake transportation, tractors, and automobiles.”
Who, you might wonder, is the author of that rather seemingly random and extensive list? Henry Ford in his 1926 book Today and Tomorrow.
It is somewhat hard to imagine any giant corporation of today having such a range of products and businesses, especially a range that is fundamentally focused on the production of a set of products, in Ford’s case, motors.
What’s even more the case today is that auto companies are tending to reduce the amount of production of ancillary parts and systems, having that work done for them by the supply base. Certainly suppliers that have focus can be more competitive both technologically and from a pricing standpoint. This benefits everyone, both OEMs and end customers included.
But is this an unalloyed good thing?
In mid-February, LA Times business writer Michael Hiltzik wrote a piece about the Boeing 787 Dreamliner, which, as he pointed out, “is billions of dollars over budget and about three years late.”
Part of the problem, he acknowledged, “stems from the plane’s advances in design, engineering and material, which made it harder to build. A two-month machinists strike in 2008 didn’t help.”
As for the first: well, when you’re creating a next-gen product, chances are that there are going to be some fundamental changes that are going to necessitate new processes and materials. Otherwise, you have a same-gen product on a new day. And as for the strike, well, stuff happens.
Hiltzik made another, more significant, point: “But much of the blame belongs to the company’s quantum leap in farming out the design and manufacture of crucial components to suppliers around the nation and in foreign countries such as Italy, Sweden, China, and South Korea. Boeing’s dream was to save money.”
Hmm. . .a dream but no commercial Dreamliner at this point.
Hiltzik: “Boeing’s goal, it seems, was to convert its storied aircraft factory near Seattle to a mere assembly plant, bolting together modules designed and produced elsewhere as though from kits.”
In point of fact, it probably is from kits, not “as though from kits.”
A large part of the Boeing outsourcing strategy undoubtedly had to do with selling aircraft to the airlines in the various countries. Still, the company management apparently didn’t recognize the demands associated with outsourcing: It is more than saying, “We need this many of these by this point in time.”
Hiltzik quoted Jim Albaugh, Boeing’s present commercial aviation group chief, who made a presentation to business students at Seattle University in late January as saying, “We gave work to people that had never really done this kind of technology before, and then we didn’t provide the oversight that was necessary. In hindsight, we spent a lot more money in trying to recover than we ever would have spent if we tried to keep many of the key technologies closer to Boeing.” Intrinsic ability is invaluable.
It is worth noting that one of the people who was involved in the outsourcing strategy, the head of the Boeing commercial aviation group in the early 2000s, is Alan Mulally, Ford CEO. One can only assume that he’s learned a lesson in this regard.
Again, the 21st century is a different place from the 20th of Henry Ford. But is it any less essential for companies to have deep, profound knowledge of the products they are building? I don’t think so. The price of losing that knowledge and capability can be numbered in the billions, as Boeing has apparently come to realize.